Do 5-1, 5-2, 5-3, 5-4, 5-5, 5-6, 5-7, 5-8, 5-9, 5-10
Due date: On Saturday at 10:00a.m.
Easy Problem 1-8
5-1 PROBLEMS FUTURE VALUE if you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?
5-2 PRESENTS VALUE what is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
5-3 FINDING THE REQUIRED INTEREST RATE Yourparents will retire in 18 years. They currently have $250,000, and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don’t save any additional funds?
5-4 TIME FOR A LUMP SUM TO DOUBLE If you deposit money today in an account that pays 6.5% annual interest, how long will it take to double your money?
5-5 TIME TO REACH A FINANCIAL GOAL You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?
5-6 FUTURE VALUE: ANNUITY VERSUS ANNUITY DUE what’s the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due, what would its future value be?
5-7 PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Its future value?
5-8 LOAN AMORTIZATION AND EAR you want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 12% with interest paid monthly. What will be the monthly loan payment? What will be the loan’s EAR?
5-9 Problems PRESENT AND FUTURE VALUES FOR DIFFERENT PERIODS Find the following values using 9-26 the equations and then a financial calculator. Compounding/discounting occurs annually. a. An initial $500 compounded for 1 year at 6% b. An initial $500 compounded for 2 years at 6% c. The present value of $500 due in 1 year at a discount rate of 6%. d. The present value of $500 due in 2 years at a discount rate of 6%
5-10 PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST RATES I Ind the following values. Compounding/discounting occurs annually. a. An initial $500 compounded for 10 years at 6% b. An initial $500 compounded for 10 years at 12% c. The present value of $500 due in 10 years at 6% d. The present value of $1,552.90 due in 10 years at 12% and at 6% e. Define present value and illustrate it using a time line with data from Part d. How are present values affected by interest rates?
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